Auto-Deleveraging (ADL): A loss covering system, that automatically deleverages opposing traders’ positions by profit and leverage priority. It is triggered when the Insurance Fund is insufficient to cover the loss.
A possible loss may occur during the event of Liquidation when a position is liquidated at a price worse than the Bankruptcy price. BTCMEX will always use the Insurance Fund first to cover the loss. But in a rare case, when the Insurance Fund is insufficient to cover the loss, the ADL system will be triggered.
A loss is possible because BTCMEX uses the fair Dual-Price Mechanism, according to which Liquidation is triggered by the Mark Price, meanwhile, the liquidated position is closed using the Last Traded Price. Learn more about Dual-Price Mechanism on a crypto exchange.
Every trader has an ADL ranking according to his profit and Leverage. High-profit and high-leveraged positions will be selected by the ADL system first.
Trader A holds a long position with 200 contracts and is liquidated with a loss. If trader B, with 230 contracts on a short position, has the highest ADL rank, the system will close 200 of those at A’s Bankruptcy Price. If trader B doesn’t have enough contracts the system will automatically select trader C - the next one in the ADL ranking, and so on, until the loss is fully covered.
To sum up, ADL is a crypto exchange feature that automatically deleverages opposing traders’ positions by profit and Leverage priority. Unlike in a Socialized Loss Covering system, which spreads the loss amount among all profitable traders on the exchange.
BTCMEX is convinced that all the profitable traders with low-Leverage shouldn’t suffer from other risky (high-Leverage) users’ loss.
BTCMEX Trading Codex - the most accurate definitions of Cryptocurrency Trading Terms